Self Managed Super Fund (SMSF) Investment Strategies

This guide is part of our Comprehensive Guide To SMSFs. We recommend reading the full guide in order to get a better understanding of SMSFs.

Preparing and implementing your SMSF investment strategy

When managing your self managed super fund (SMSF) you need to create and implement an investment strategy for the fund. This should be reviewed on regualr basis to ensure you are not falling outside your own investment guidelines. Your SMSF investment strategy should cover a number key areas such as:

  • Risk management of the underlying investments and strategies that focus on maximising member returns with consideration to the kinds of risks the fund is taking on, such as volatility, liquidity and cost.
  • Making sure your fund is able to pay it obligations as they fall due such as paying taxes, member retirement benefits and any other costs associated with running your SMSF
  • Within what range you will invest across a diverse range of asset classes and will this reduce or manage investment risk over the long term. Some of the asset classes may include cash, term deposits, bonds, australian shares, currency, direct property etc.)
  • Making an enquiry into the needs of the members and their appetite for risk and return by understanding their date of birth, earnings capacity, contribution levels (such as SGC), retirement needs and insurance levels.

Your SMSF investment strategy should provide a detailed explanation of your investment goals and provide  a investment methodology of how these goals will be achieved. You can use the services of an investment professional or financial adviser to assist you in creating a suitable investment plan for your SMSF.

As an SMSF trustee you need to make sure all investment decisions are made according to the investment strategy of your fund. There are numerous sample investment strategies available from accountants and legal document companies. To see a sample of an SMSF investment strategy template click here.

What can my self managed super fund invest in?

There are vast number of options available to you when it comes to investing with your SMSF, in general there are no restrictions on what kinds of investments your SMSF can invest in. Some of the types of investments you can access include but are not limited to:

Of course these must be included as part of an overall investment strategy as mentioned above.

What are the investment restrictions for my self managed super fund?

Superannuation laws provide restrictions on the types of entities your fund can invest in or with and the entities that your fund can acquire assets from, to protect the benefits of the members. This reduces the risk of loss from undue exposure such as business failure, loss of your home ( as a trustee) or if a member is legally sued.

According to the ATO unless there is a specific exception that applies to your fund, generally as a trustee you are not allowed to:

  • lend out the fund's money or provide financial assistance to members and or their relatives
  • purchase assets from related parties of the fund, such as: from the super funds members and their associates or from the fund's standard employer-sponsors and their associates
  • borrow an amount of money on the behalf of the super fund (certain limited recourse borrowing arrangements are now allowed, see the section on borrowing here)
  • provide finance to, make an investment in or create a lease to a related party of the SMSF (e.g member or a related trust) of more than 5% of the super fund's total assets (also known as 'in-house assets').

These investment restrictions are the most important rules you need to comply with under the super laws. Failure to do so means the ATO can impose significant penalties on you and the fund. Always seek the advice of an SMSF accountant or SMSF financial adviser to check that your investments are compliant within the law.

Non compliance with the rules can result in your fund losing its complying status and this can lead to a failure of you not performing your duties as a trustee according to the law and penalties may apply.

 

Under what name should my SMSF assets be held or secured?

The ownership structure of your SMSF's assets must be correct so that you do not breach the in house asset rules . The fund’s assets must be held as legal title in the name of the trustee/s. Your SMSF assets should be held under:

  • the name of trustees of your fund this includes each and every individual trustee 
  • the name of the company acting as trustee of your fund if you have setup a corporate trustee arrangement.

Also be aware that there are different rules for different states and some of them do not allow you to hold assets in your super fund name. You should always check with a professional SMSF adviser, accountant or legal adviser in relation to this if you are investing interstate.

Can my super fund lend money to third parties?

The short answer is NO. You cannot lend money, such as providing financial help either directly or indirectly to a member or a members relative from your fund.

A good example of this is if you used the funds assets as security to obtain a personal loan, this could breach the super laws under restricted investments (in house asset rules).

According to the ATO: by definition a member or a member’s relative means any of the following:

  1. a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of that individual or of his or her spouse
  2. a spouse of that individual or of any individual specified above.

Also some changes were made in relation to the definition of a spouse in July 2008, this now includes same-sex couples. See this ATO update here.

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